Understanding Taxation And Income In Australia

HA3042 Taxation Law

Taxation of Lottery Winnings

The question seeks to assert whether lottery-winning if yearly payment forms part of income as per the Australian law.

Rule

In the Australian law, winnings of a lottery are considered to be awards and are not subject to taxation – hence the yearly payments of the ‘Set for Life’ lottery are not part of one’s wage. Despite the prolonged payment of ‘Set for Life’ lottery winnings, these winnings are not subjected to taxation, which implies that these annual awards are not declarable in form of tax returns. In the provisions of the Australian law, one is barred from taxing ordinary lottery winnings. Tax is only applicable when one obtains scratches since they are, implying that tax is payable upon purchase.

Pickernell et al., (2013, p.274) explains that long distribution of lottery winnings – 20 years in this case, guarantees one to be in receipt of small, same-sized rations of the large amount of his/her winnings but they cannot be viewed as a person’s earnings. The long distribution entity allows lottery companies to retain the winnings of a person while regularly dishing out its potions.

It is vital to note that the annual portions given to one are a part of the previous winning during the lucky gamble, and are not a subject to any annual rate profits hence eliminating all the chances of taxation of this money. Norregaard, (2013 p.59), explains that if a winner of the lottery passes away, the commissioner is obliged to pay the remaining amount which is not liable to any forms of taxation. In contrast, this remaining sum would be liable to taxation if any forms of interest accrued or were earned on it. In the case where interest is earned, the profits are taxable at the rate as that set for income.

Therefore, it is arguably true to conclude that payments made on lottery winning are not classified as income since they are not subjected to taxation. However, interests earned from such winnings can be classified as income since the law provides that they are subject to taxation like that of the income-tax. In our conclusion, it is significant to note that payments for a lottery won are considered awards by the Australian law. Scratch purchases made in relation to lottery winnings are considered to be capital gain and are liable to taxation.

Saad, (2014, pp.1069), reviews the complexity of taxation and asserts that awards such as those from ‘Set for Life’ lottery winnings are cannot be evasive to the state taxation as there banking is subjected to charge proposals. On the same note, Saad affirms that the passing away of the lottery winner does not give a leeway for the commissioners to evade the payment of the awards as ones IHT scale is evaluated by the HMRC and the remaining amount gets paid to the persons willed by the deceased or immediate family members. It is therefore valuable to educate that beneficiaries of lottery should be in consent with law’s requirements regarding the taxability of their winnings – untaxable unless it is accruing interests, and that the state does not take them as income but as rewards. The state law also protects the beneficiaries of the lottery winnings to untaxed reimbursement incase the winner passes away.

Determining Taxable Income for Accrual Accounting Businesses

QUESTION 2

Case

 The question is regarding how taxable income should be determined based on accrual accounts.

 Rule

According to Daley, Wood, and Coates, (2015), taxable income of a business is calculated by subtracting its business expenses and operational expenditures from the gross income. Taxable earning concerns the evaluation of pay used to calculate how much expense a person or an institution is indebted to the legislature in a certain duty year.  Gross income of a business is the intermediate earnings which includes its expenses, net income and the total profits or losses

Application Taxable income is calculated by adding up the whole revenue accrued in the year, that is, credit card sells, the cash sales and the PBS Billings then subtracting the expenses throughout the year – cost of goods which is achieved by summing up the opening stock and the purchase and then then subtracting the closing stock, the salaries and the rent (Parker, 2018). It’s the pay one needs to make good on regulatory duty on or rather an expression referring to the sum left after every cost allowed has been deducted to guarantee from one’s computable earnings. Regarding the accrual basis, which, according to Snape, and De Souza, (2016), is an accounting technique that only acknowledges the paid records while disregarding credits, Corner Pharmacy’s taxable income is less the sum of unpaid bills.

Calculating Taxable income of Corner Pharmacy

Gross revenue = credit card sells + cash sells + PBS billings

Credit Card Sells: 150000

Cash Sales: 300000

Pbs Billings: 200000

Gross revenue = 150000 + 300000 + 200000

The Corner Pharmacy’s gross revenue is $ 650000

Expenses on goods = opening stock + purchases – closing stock

Opening stock=-$150,000

Purchases=$500,000

 Closing stock = $200,000

Expense cost of goods sold = 150000 + 500000 – 200000

Expenses on the goods sold at Corner Pharmacy is $ 450000

Salaries: 60000

Rent: 6 50000

Total Expenses = expense on goods + salaries + rent

Total expenses = 450000 + 60000 + 50000

Total expenses = $ 560000

 Net Income = Total Revenue – Total Expenses

 Net Income = 650000 – 560000 = 90000

Net Income = 90000

Conclusion

It iss always thought that; business events are made by synchronizing wages to costs (the systematizing standard) during the occurrence of altercation as opposed to when the installment is made or got. This measure allows for present inflows/surges to be compounded with potential anticipated cash outflows or outpourings to provide an accurate image of entities which present the financial situations (Mellor, 2016).

The requirement for this approach resulted from the expanding competent nature of trade and urge for accurate data budget (Philander, 2013). Offering using a loan and tasks that result to income over a major period impacts on entities monetary state for the purposes of trade & therefore spells out that such events ought to be thought about the cash related explanations amid a like announcing period that the exchange takes place.

QUESTION 3

Case

A gardener who was employed by the Duke of Westminister earned from his net pay. The duke stopped paying the gardener in order to reduce tax and came up with an agreement proving that he was to pay a given amount at the end of a certain period and therefore claim the cost as a deduction to his taxable income as per tax law provisions.

Court Case Involving Taxpayer Seeking to Reduce Taxable Income

Rule

In the court proceeding where the Inland Revenue Department challenged the Duke of Westminister, a principle was set to allow taxpayers to employ the laws of taxation to their advantage and would not be imposed on him/her to make one pay higher taxes (Lang, 2014).

 Application

 The Westminster Duke enforced a deed of covalent upon employees including; local assistants and nursery workers. In particular, the Duke assured that he would pay some money for their administrations. A letter was written and sent to the employees indicating that he would make some compensation regarding extra sums, if any, as a partial payment for their administration as household aides. He tried to grant such installment for a cost conclusion as a plan for charge avoidance. Deeds refer to authoritative archives which entail mutual assertions of surpluses of a person that are normally engaged to sanction profits, for instance, the substitute of an asset or privilege (Hufnagel, 2016).

The main difference between a deed and a consensus is that a deed is a structured understanding that must be indicated and attached under an outside observation, commonly an honest individual, like a counsel; in addition, the affirmation must be composed, a deed different from an accord a consideration is not needed to be implemented and an outside receiver can compel the need to be carried out (Isa, 2014, pp.55). Therefore a deed is two-was folded. Basing our argument on the deed or contract, the instalment can be considered an expenditure that is reducible while taking consideration that it is annual to the cultivators and hirelings (Ulbrich, 2013).

In the Duke’s case, he was obliged to pledge help for the charges of annual installments or any amount that was paid for administration services that were provided that year. Regarding amounts paid under the deed in relation to periods amid which individuals were under the Duke included; compensation for administrations, they were not subject to deductions in recording the Duke’s risk for surtax (Gans, 2016). Upon determination, it was clear that the deeds were brought into existence in order to help in reducing the Dukes surtax obligation.

Conclusion

 The application of the case of the Duke of Westminister in the present in today’s principle would allow for an evasive leeway where taxpayers can evade payment of duty as long as the state laws make provisions. Citing an instance where the court allow significant standards of the agreement of the deed of covalence to reduce the Duke’s expenditure as a requirement on the off chance that its put in place and by just making it a case for a year of annual partial payments. The established principle allows a taxpayer to handle his/her budget requirements such that one can benefit more on lesser cost.

The tax collection laws would not, by any chance, be in a position to hold one liable if he/she finds a clean way of evading the costs (Chalmers et al, 2013, pp.518). In contrast, the principle established by this case has little or no significance in the present day business operations in Australia as the state laws aim at establishing the impacts of transactions on taxation – if the business deal is entirely an arrangement to avoid tax, it is deemed unacceptable. The unnecessities of the principle are further elicited in the court’s choice to apply the principle of Ramsay in burdening a taxpayer’s remedial activities (Slack, 2013).

QUESTION 4

Case

The question seeks to assert how capital gain or lose is owed for the purposes of taxation and how relevant parties are answerable to such gains or losses.

Rule

The property agreement poses that Joseph is eligible to 20% of the profits from the assets while Jane is eligible to 80% of the gains from the property. Therefore the property’s ownership is staked at a ratio of 1:4 of Joseph and Jane respectively. Regarding the income tax law, both Joseph and Jane are liable to taxation as their asset raises profits from rent and capital gain if it was to be sold. Therefore when the share of each person is defined clearly and can be ascertained, then each respective share of the person shall be taxed individually (Endres & Spengel, 2015).

 Application

 If Joseph and Jane agree on selling their property, they will be required to give an account of their capital gain or loss in respective to their lawful interest ratio of 1:4. With regards to the tax payment for the losses attributed to rental chattels, the annual tax is calculated wholly. This could be carried forward to the next financial year if the duo were unable to pay so as to settle it with the capital gains as they are determinable from the earnings. For the cases of a loss, Joseph is obliged to settle the payment fully, from his gains and profits as he is entitled to a 100% responsibility for losses.  Therefore any loss occurring from the chattels has no direct impact on his wife in terms of payment of tax. Following their contract, Jane is only liable to the tax applied on their total profit which is to be shared in accordance with their ratio.

If the duo sticks to the current ownership agreement, Joseph could make deduction of the capital loss accrued during the current financial year’s capital gain. Similarly, it’s important to come up with a CGT planning as it lets one know in which payment year to account for the capital gain or adversity and may also contribute on how to figure out one’s expenditure obligation (Eccleston& Woolley, 2014 pp.219). For example, by land, generally a CGT event takes place when one goes further to assess the understanding date, not when one settles. It is the many-sided quality between what it costs to get the benefit and what one gets when he/she discards it. One is supposed make a report of the capital increase and adversity in the compensation government shape and follow through on administrative adherence on the capital increase.

Despite the fact that it’s suggested to as capital increase impose, it includes ones wage charge & therefore the similar assessment. When a capital gain is made, it’s summed up to one’s quantifiable income and, would, together increase the costs one has to pay (Jeiza, 2018). Since expenditure is not suspended for capital additions, one might need to calculate the duty he/she will be indebted & set aside enough property to settle the amount. Incurring a capital loss decreases the capital gain and can never be made against income (Becker, Reimer, and Rust, 2015).

The cost base and reducing cost base of an asset include the total one puts up in addition to certain coincidental costs related with receiving, retaining and disposing it (for example, legal charges, stamp duty and land expert bonuses). Totals guaranteed as costs reasoning or ensured as outcome are barred from the investment cost base and lessened cost base(Basu, 2016). Capital gain or loss might be overlooked if a tip applies – for example if ones assets were compulsorily obtained or exchanged with ones preceding partner under a family law resolution.

 Conclusion

Joseph and Jane are fully entitled to share any all forms of capital gain or loss from their investments regarding what is obtained when the property is sold. The consideration would be on the basis of the varying amount of buying and selling of assets, in both cases where there would be appreciation or depreciation. The asset belonging to Joseph and Jane was acquired via a loan. In such circumstances, the basis of evaluation needs to consider the loan offsetting and its interest. If the property were to be sold, any gains or losses obtained are liable to taxation.

In an educative perspective, it is vital for one to make an evaluation of the financial outcome in terms of profit or loss before setting their property (Almy, 2014). Such steps would protect one against liabilities that may accrue due to the taxation laws concerning capital gains and losses. At the situation at hand, significant losses have been attracted by the property and it is wise to consider not selling as it would protect Joseph and Jane against capital loss taxation as it would worsen their financial crisis.The award is not subject to taxation but a raise in value makes it liable to tax in form of capital gains. Also, lottery won in Australia is not taken as ones income, and therefore not taxed. However, any purchase made in relation such a win is likely to be taken as a capital gain which must be acknowledged on a tax return.

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